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Amazon, Apple Mixed Ahead of Earnings: Tech Winners & Losers

NEW YORK (TheStreet) –– Amazon(AMZN - Get Report) shares were slightly higher Monday morning, up 0.2% to $359.29 after unveiling a new Kindle initiative.

On Friday, Amazon introduced a new Netflix-like subscription service for e-books. Subscribers to the service, called Kindle Unlimited, pay $9.99 a month to read an unlimited number of the approximately 600,000 Kindle books. They also receive a free three-month membership to Audible, through which they can listen to an unlimited number of audiobooks during the three-month period. Amazon’s Whispersync technology allows readers to alternate between Kindle books and audiobooks seamlessly. The books are also accessible on the Kindle apps for iPhone, iPad, Android tablets and phones, Windows Phone, BlackBerry, PC, Mac, and Windows 8.

“With Kindle Unlimited, you won’t have to think twice before you try a new author or genre—you can just start reading and listening,” said Russ Grandinetti, Senior Vice President of Kindle. “In addition to offering over 600,000 eBooks, Kindle Unlimited is also by far the most cost-effective way to enjoy audiobooks and eBooks together. With thousands of Whispersync for Voice-enabled audiobooks to choose from, you can easily switch between reading and listening to a book, allowing the story to continue even when your eyes are busy.”

In a note Monday morning, analysts at JPMorgan initiated coverage on GoPro with an “overweight” rating and a price target of $51, a 23% premium from Friday’s close. “GoPro is a profitable, fast-growth CE company, addressing a large market as the category-defining brand in professional-quality action cameras at consumer prices” that create “visceral and compelling Point-of-View (POV) action videos,” the report read. The report noted that the stock has jumped 71% since its IPO, while the S&P has only risen 1%. Nonetheless, the analysts argued that GoPro has positioned itself for further growth through “successfully cracking the mass-market threshold.”

Barclays also initiated coverage on GoPro, with an “equal weight” rating and a $45 price target. “We can think of few products that so perfectly capture the era of the ‘selfie’ and the ‘digital native’ as the GoPro,” analyst Joseph Wolf wrote. “With nearly $1bn in device and accessory revenues in 2013 it owns the action camera category.” Wolf added, “We do not see 5 million unit sales in 2014 as a stretch for GPRO, which is now being used in many professional environments.”

Piper Jaffray analyst Sean Naughton also initiated coverage of GoPro with an “overweight” rating and a price target of $48. He noted that because “38% of GoPro owners in our survey own more than one capture device,” its sales “need not flat-line as penetration rises.” Naughton predicts that GoPro will eventually “offer a full ecosystem of hardware, software and media”. The company’s “focus on the total user experience of capturing, managing, sharing and enjoying engaging content coupled with a strong brand” gives it a competitive advantage that will allow it to maintain profitability

Netflix(NFLX - Get Report) shares rose modestly, up 1.5% to $450.63 ahead of today's release of its second-quarter earnings.

Netflix’s commitment to originally content has proven a sound decision, with its hit prison drama Orange is the New Black releasing its second season in June to both fan and critical acclaim. Netflix also garnered 14 Emmy nominations earlier this month for three of its original programs, Orange, House of Cards, and Derek. The company looks to expand significantly internationally, announcing in May that it would expand to Germany, Austria, Switzerland, France, Belgium, and Luxembourg by the end of the year. This earnings report also follows Netflix’s May announcement that it would hike domestic prices for new members to $8.99 per month from $7.99.

Analysts polled by Thomson Reuters expect earnings to have more than doubled to $1.15 a share from 49 cents a year ago. Revenue is expected to grow nearly 25% to $1.33 billion from just over $1 billion year-over-year. Sales are expected to climb 5% sequentially, even though the company warns that the summer is its weakest month.

Steven Milunovich of UBS reiterated a “buy” rating and raised his price target to $115 from $110 this morning. He wrote in his note that he had raised estimates of revenue and EPS by 2.5% due to “improved product mix,” with the iPhone 5s and the iPad Air remaining dominant in their respective power. Milunovich expects a higher-than-expected gross profit margin of 38.1% rather than the 36.6% he’d previous modeled as the company overcomes the impact of the revenue deferral from last year’s decision to make some iOS software applications free on Apple devices: “This June quarter should be the last with a negative gross margin comparison from the step-up in the revenue deferral rate. For the past three quarters, we estimate Apple’s gross margin has been negatively impacted by 0.9-1.5 points YoY to account for the increased free software with iOS device sales.”

Milunovich also lowered his fiscal fourth-quarter guidance given the company’s transition to a larger, 5.5-inch iPhone, which he expects will ship that quarter: “We expect Apple will ship the 5.5-inch iPhone 6 in the September quarter. Our checks indicate that Apple has incurred some difficulties with display-related components.” Nonetheless, he added that “our estimate for initial iPhone 6 sales is quite conservative.”

Finally, Milunovich considers the potential release of an iWatch wearable device, estimating that the product could sell 24 million units in the year after its release. “Our napkin math suggests iWatch margins could be as high as 50%," Milunovich wrote in the note.

Apple reports its fiscal third-quarter earnings tomorrow after the bell.

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